[AccessD] OT: Pricing Method ?

Jim Lawrence accessd at shaw.ca
Sat Nov 4 15:37:08 CST 2006


Hi Robert:

If the item's costs are fairly constant then an average might be an
appropriate way to price an item... Mind you if the item is fairly
consistent there would seem to be no need for an average.... Just set an
reasonable markup and leave it until a major cost change requires a price
increase or decrease. If the items cost fluctuates dramatically then the
average price maybe be below cost.

Unless you are running a cost/price system like a stock exchange or a cost
plus seller store (ie, gas-station or grocery store) oscillating selling
prices would just confuse a customer. I would tend to just apply a
reasonable margin that would buffer the shifting costs until the difference
become to slim or too wide and then have the system trigger a recal of the
margin.

For your averaging system a moving date window would be a reasonable
constraint. No I have never designed an application that could marked up an
items using an averagering... But I have no idea of what type of business
you are designing for. 

HTH
Jim      

-----Original Message-----
From: accessd-bounces at databaseadvisors.com
[mailto:accessd-bounces at databaseadvisors.com] On Behalf Of Robert
Sent: Saturday, November 04, 2006 11:34 AM
To: 'Access Developers discussion and problem solving'
Subject: Re: [AccessD] OT: Pricing Method ?

Jim,
 Thanks, indeed very helpful.. 

Would you, or have you ever, marked up the item based on it's average cost
plus current cost? If so, would the average be limited by a date frame?

Thanks
Robert 

-----Original Message-----
From: accessd-bounces at databaseadvisors.com
[mailto:accessd-bounces at databaseadvisors.com] On Behalf Of Jim Lawrence
Sent: Saturday, November 04, 2006 12:19 PM
To: 'Access Developers discussion and problem solving'
Subject: Re: [AccessD] OT: Pricing Method ?

Hi Robert:

There is no right-way. My specialty is POS applications and clients ask for
any number of ways to establish the markup on products.

1. An arbitrary amount. Then the margin is assigned. 
2. Percentage: As the product increases in prices a flat percentage does not
work. Sometimes a client has requested a incremental series of steps or
break points when applying percentage margins against products.
3. If the client sells a group of products of a similar value it is easier
to just apply a fixed margin.
4. Sometimes if a client has really done their research they can calculate
their monthly projected operating cost and then a margin/percentage can be
applied to create projected monthly sales. (Bigger companies use this method
but most small businesses just wing it.) 5. Some businesses just go with the
Manufacture's suggested retail price and then the margins can be all over
the map.
6. Many businesses are either full or partial fiancées and they tend to take
the pricing queues from their parent or partner company. ... But can get to
charge what ever rate they want on some specialty products.

The basic rule-of-thumb is one third principle which recommends 1/3 cost for
product purchase plus 1/3 cost of running the business and 1/3 for
profit/taxes/extra expenses/growth.

This is a long way to say that there is no right way to establish the
selling price. It can be a business model that uses high-markup and lower
volumes or low margins and higher volumes.

Using the method of applying Average Cost would only work if all the
products the store sells are of a similar cost. Most businesses tend to use
a method similar to your last suggestion.

Businesses like to be able to set a default method to establish their base
selling price for their product and I would give them a number of algorithms
to select from but then they want to go in to the view the calculated retail
prices of their product lines and make arbitrary changes.

As I see it there is no wrong way but if you are writing an application for
a client be assured that they want choices.

I hope this helps, does not confuse and has not strayed too far off the
subject.
Jim         

-----Original Message-----
From: accessd-bounces at databaseadvisors.com
[mailto:accessd-bounces at databaseadvisors.com] On Behalf Of Robert
Sent: Saturday, November 04, 2006 7:16 AM
To: 'Access Developers discussion and problem solving'
Subject: [AccessD] OT: Pricing Method ?

 

This is probably a stupid question but.....

When calculating the selling price of an item, say by margin, do you
calculate based on the current received cost, or does one take the average
cost (of previously received items) + the current price and then perform the
calculations?

Total = AverageCost / (1 - m_dMargin)

Or say 

Total = RecievedCost / (1 - m_dMargin)


Another question....

What do you think is the best method of pricing an item in a Service
Oriented business. The business would sell both labor and components..


Thanks
Robert 

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